Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 4, 2026

AI Summary. The author argues that as incremental gains from larger AI training runs shrink, the return on additional computing power falls, weakening the case for the training spending that dominates data center demand. Survivors of model commoditization will be those owning the orchestration layer or the applications where outcomes are priced.

Paul Kedrosky Notes on Complexity
Date Posted:
Is Database:
Database

As incremental model gains shrink, the return on investment in massive training runs weakens. With most capex and data center load tied to training, Kedrosky asserts, “In a slowing intelligence regime, architecture beats raw capability.”

Does shrinking returns from larger AI training runs undermine data center spending?

Core argument: The author argues that capital expenditure tied to model training, which constitutes most AI spending and most data center load, looks increasingly misguided and even stranded as returns on additional compute decline.

Declining progress rate breaks capital dynamics. When incremental gains shrink, justification for massive training runs weakens. The return on additional compute declines unless it unlocks step-function capability, which is masked anyway by these new tools. Investors begin asking whether orchestration and product engineering yield higher ROI than another modest benchmark improvement. The vendors that survive model commoditization will not be those with the marginally highest benchmark score. They will be those who either (a) own the orchestration substrate that defines how models are used, or (b) own the applications where outcomes are priced and embedded. It is even possible, and perhaps likely, I've argued, [that] the winner will be the first frontier model company to abandon spending on models. Current capex related to model training—which is most of spending, and most of data center load—looks increasingly misguided and even stranded. It is pressured at one end by model distillation and open source, and at the other by commoditizing orchestration layers.

Takeaways by Macro Roundup® AI

  1. The author argues that capital expenditure tied to model training, which constitutes most AI spending and most data center load, looks increasingly misguided and even stranded as returns on additional compute decline.
  2. Survivors of model commoditization will be vendors that own the orchestration substrate defining how models are used or the applications where outcomes are priced and embedded, not those with marginally higher benchmark scores.
  3. Model training spending is pressured at one end by distillation and open source and at the other by commoditizing orchestration layers, and the author suggests the winner may be the first frontier model company to abandon spending on models.

Related Articles:

  • Chart of the Day: AI Capex, From Bonanza to Burden — Stock price reactions to large artificial intelligence capital spending announcements have shifted from rewarding to penalizing companies, with the valuation multiple markets assign to such spending collapsing and likely turning negative. Technology companies once valued for low debt and low capital intensity are now among the leaders in both.
  • Four Takeaways from Microsoft’s Satya Nadella at WEF Today — Microsoft's chief executive says the price of AI model usage ("tokens") falls by roughly half every three months. Commentary argues that such rapid deflation pulls demand forward, encourages overbuilding, and commoditizes models, shifting competitive advantage to orchestration and context rather than the model layer.
  • The Geopolitics of AI: Decoding the New Global Operating System — The performance gap between the top American and Chinese AI models narrowed from 9.3% to 1.7%, with Chinese firms relying on cheaper open-source models—DeepSeek prices usage 20-40x below OpenAI's ChatGPT. This price advantage could win adoption in developing countries and build dependency on Chinese AI ecosystems.

AI Summary. Foreigners are accumulating more financial claims on Americans than Americans are on foreigners across direct investment, stocks, bonds, currency, deposits, and loans, and the U.S. net international investment position has moved from -20% of GDP in 2010 to -89%. Almost all of that swing reflects valuation gains on U.S. stocks rather than added borrowing.

Matt Klein The Overshoot
Date Posted:
Is Database:
Database

The worsening of the US net international investment position – from -20% of US GDP in 2010, to -53% pre-pandemic, and to -89% as of the end of 2025Q3 – reflects valuation gains on US stocks relative to stocks in the rest of the world.

Does the deteriorating U.S. investment position reflect borrowing or stock valuations?

Core argument: The U.S. net international investment position swung from -20% of GDP in 2010 to -53% just before the pandemic and -89% as of 2025Q3, almost all reflecting valuation gains on U.S. stocks relative to foreign stock markets.

Foreigners are accumulating more financial claims on Americans than Americans are accumulating on foreigners across every single category: FDI, stocks, bonds, physical currency, deposits, and loans. Foreign official investors supposedly have been mild sellers of U.S. assets over the past 12 months, but the standard measure does not include state-affiliated institutions that operate on behalf of foreign governments. Meanwhile, the U.S. net international investment position has swung massively over the past few years, from -20% of U.S. GDP in 2010, to -53% of U.S. GDP on the eve of the pandemic to -89% as of the end of 2025Q3. Almost all of that reflects massive valuation gains on U.S. stocks relative to stock markets in the rest of the world. The good news is that actual U.S. indebtedness has not meaningfully increased, and the methods used to assign market values to FDI in the U.S. and abroad make the situation look more extreme than it is. (U.S. FDI assets in Ireland are overwhelmingly big tech and big pharma, for example, but the market value of those assets is imputed based on the performance of the maker of Kerrygold.) The bad news is that, if the current level of the NIIP is unsustainable, the easiest way for it to revert is for U.S. stock prices to fall dramatically.

Takeaways by Macro Roundup® AI

  1. The U.S. net international investment position swung from -20% of GDP in 2010 to -53% just before the pandemic and -89% as of 2025Q3, almost all reflecting valuation gains on U.S. stocks relative to foreign stock markets.
  2. Foreigners are accumulating more financial claims on Americans than Americans are on foreigners in every category — FDI, stocks, bonds, physical currency, deposits, and loans — while actual U.S. indebtedness has not meaningfully increased.
  3. Methods for assigning market values to foreign direct investment make the imbalance look more extreme than it is, since U.S. FDI assets in Ireland are overwhelmingly big tech and big pharma yet are valued using the performance of the maker of Kerrygold.

Related Articles:

  • The US Trade Deficit and Foreign Borrowing — The authors argue US trade deficits persist because foreign investors find US financial assets attractive, but the current deficit level is not sustainable. They estimate that stabilizing the US net foreign liability position requires improving the trade balance by about 2% of GDP, or over 3% if low-cost borrowing privileges are lost.
  • The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States — The authors document that the U.S. net foreign asset position fell by 60 percentage points of U.S. gross domestic product between 2007 and 2021, even as U.S. current account deficits narrowed. They attribute this to a boom in the market valuation of U.S. corporations' non-financial assets, which mechanically raised the value of large foreign equity holdings in U.S. firms.
  • United States’ Changing Net IIP — The United States' net international investment position deficit—the gap between foreign-owned US assets and US-owned foreign assets—is the largest on record and has turned negative across all major asset categories. Because much of the liability is equity, the author argues rebalancing could come through a correction in US equity values rather than a weaker dollar.

AI Summary. Korea's external surplus was offset entirely by purchases of foreign equities rather than debt outflows, with the Bank of Korea selling foreign exchange to support the won instead of accumulating reserves. The author argues a large share of the roughly $1tn U.S. current account deficit is now funded by equity inflows rather than the bond buying that historically financed it.

Brad Setser Council On Foreign Relations
Date Posted:
Is Database:
Database

The capital account counterpart of South Korea’s record CA surplus is now purchases of foreign equities. “Historically, the US current account deficit has been funded almost exclusively by foreign purchases of bonds,” Setser notes.

Are foreign equity purchases now funding the U.S. current account deficit?

Core argument: A decent share of the flow funding the $1 trillion U.S. current account deficit in 2026 came from equity inflows, a break from the historical pattern in which the deficit was funded almost exclusively by foreign purchases of bonds.

Unsurprisingly, given the weakness in the won, the Bank of Korea didn’t need to recycle Korea’s external surplus—a marked change from ten years ago. In fact, the Bank of Korea sold a bit of foreign exchange over the course of 2025 in an effort to support the won. Korea’s surplus was also interesting for another reason: the entire outflow that offset the surplus came from Korean purchases of foreign equities (and a bit of foreign selling of Korean equities). There was no substantial debt outflow. Historically, the U.S. current account deficit has been funded almost exclusively by foreign purchases of bonds—whether by reserve managers, or life insurers and pension funds seeking higher coupons than they could find in their home markets (both on U.S. Treasuries and U.S. corporate credit). But in 2026, for the first time in a long time, a decent share of the new flow associated with the $1 trillion deficit came from equity inflows. Bottom line: it is a new world. The U.S. deficit isn’t being funded out of reserve growth (though with the recent surge in the foreign holdings of Chinese state banks, it could soon be funded out of shadow reserves) or even by life insurance flows. A big chunk actually came from momentum-driven flows into U.S. equities. Which only adds to my conviction that the dollar isn’t going to be a good hedge for U.S. equity exposure going forward.

Takeaways by Macro Roundup® AI

  1. A decent share of the flow funding the $1 trillion U.S. current account deficit in 2026 came from equity inflows, a break from the historical pattern in which the deficit was funded almost exclusively by foreign purchases of bonds.
  2. The Bank of Korea sold some foreign exchange over the course of 2025 to support the weak won rather than recycling Korea's external surplus, a marked change from ten years earlier.
  3. Korea's external surplus was offset entirely by Korean purchases of foreign equities and a bit of foreign selling of Korean equities, with no substantial debt outflow.

Related Articles:

  • The Coming Asian FX ‘Avalanche’ — Investment firm Eurizon SLJ argues that Asian exporters have hoarded much of their trade surpluses in dollar deposits rather than repatriating them, creating an overhang the firm roughly estimates at $2.5tn in China plus more from Taiwan, Malaysia, and Korea, growing about $500bn a year. It predicts this raises the risk of a non-linear dollar sell-off.
  • Setser On Kearney Reshoring Index — US imports from Southeast Asia have risen, but China's reported exports to the US exceed recorded US imports from China by about 10%, reflecting incentives to shift final assembly and to avoid tariffs. Trade data cannot show how much Chinese content is embedded in rising Southeast Asian imports.
  • Dollar Debasement Begins — The author argues that the dollar's value against emerging-market currencies is the most reliable leading indicator of the dollar's direction, and it has kept making new lows since the Federal Reserve's rate cut. The trade-weighted dollar against other advanced economies remains noisy and within its recent range.

AI Summary. About 18% of California property transfers, nearly 60,000 homes, were made through inheritance last year, up from 12% in 2019 and roughly double the national share of 8.8%, according to real-estate data firm Cotality. That is a record for the state in data going back to 1995.

Nicole Friedman and Veronica Dagher Wall Street Journal
Date Posted:

17.5% of property transfers in California last year were inheritances, up from 12% in 2019. Nationally, 8.8% of property transfers in 2025 were inheritances.

Is inheritance becoming the main path to homeownership in California?

Core argument: Inheritance accounted for about 18% of all California property transfers last year, nearly 60,000 homes, a record in Cotality's data going back to 1995 and up from 12% in 2019.

Inheritance is one of the last reliable ways for younger Californians to own their first home. About 18% of all property transfers in the state last year, representing nearly 60,000 homes, were made through inheritance, according to a recent analysis by real-estate data firm Cotality. That share is a record for California in data going back to 1995, up from 12% in 2019. It is also roughly double the national share of 8.8% last year.

Takeaways by Macro Roundup® AI

  1. Inheritance accounted for about 18% of all California property transfers last year, nearly 60,000 homes, a record in Cotality's data going back to 1995 and up from 12% in 2019.
  2. California's 18% inherited-transfer share was roughly double the national share of 8.8% last year, according to real-estate data firm Cotality.
  3. Inheritance is one of the last reliable paths to first-time homeownership for younger Californians.

Related Articles:

AI Summary. Periods of high immigration to America have tended to be followed by restrictions, including the 1882 ban on Chinese laborers and 1924 quotas that capped European arrivals and barred Asian immigration. Those quotas suppressed immigration for 40 years, and the foreign-born share of the population fell to about 5% by 1970.

Economist Staff Economist
Date Posted:
Is Database:
Database

At 15.8%, the foreign-born population of the US is above its ~15% previous peak in 1890. That prior peak gave way under immigration restrictions such as the Chinese Exclusion Act (1882) and the Immigration Act of 1924.

Do periods of high immigration tend to be followed by restrictions?

Core argument: America's foreign-born population share reached nearly 15% in 1890, a threshold not surpassed again until the mid-2020s, before falling to around 5% by 1970.

After periods of high immigration, restrictions have tended to follow. In 1890 the foreign-born share of America’s population reached nearly 15% (a threshold that would not be surpassed until the mid 2020s). The Chinese Exclusion Act of 1882 banned Chinese labourers from immigrating to America for ten years, the first federal law to restrict immigration explicitly based on race or nationality. In 1924 Congress capped annual arrivals from Europe to just 2% of each nationality’s population residing in America at the time of the 1890 census, and banned immigration from Asia outright. These quotas suppressed immigration for 40 years and prevented America from accepting thousands of Jewish refugees fleeing Nazi Europe. By 1970 America’s foreign-born population had fallen to around 5%.

Takeaways by Macro Roundup® AI

  1. America's foreign-born population share reached nearly 15% in 1890, a threshold not surpassed again until the mid-2020s, before falling to around 5% by 1970.
  2. Congress in 1924 capped annual European arrivals at 2% of each nationality's population residing in America at the 1890 census and banned Asian immigration outright, suppressing immigration for 40 years and preventing America from accepting thousands of Jewish refugees fleeing Nazi Europe.
  3. The Chinese Exclusion Act of 1882 barred Chinese labourers from immigrating to America for ten years, the first federal law to restrict immigration explicitly on the basis of race or nationality.

Related Articles:

  • The Demographic Outlook: 2026 to 2056 — The Congressional Budget Office projects the US population rises from 349m to 364m between 2026 and 2056, with annual growth slowing from 0.3% over the next decade to 0.1% thereafter before reaching zero and then shrinking. Declining fertility is projected to push deaths above births starting in 2030, increasingly offsetting net immigration.
  • U.S. Unauthorized Immigrant Population Reached a Record 14 Million in 2023 — Pew Research Center estimates the U.S. unauthorized immigrant population reached an all-time high of 14m in 2023, or 4.1% of the total population, after a record two-year increase of 3.5m. The overall immigrant population peaked above 53m before declining by more than 1m in the first half of 2025.
  • Switzerland To Vote On Plan To Cap Population At 10mn — Switzerland will vote on a proposal to cap its population at 10mn, a limit that could jeopardize agreements with the European Union and restrict companies' access to skilled foreign workers. The population stands at 9.1mn, foreign residents make up 27% of the total, and the population has grown about 25% since 2000.

AI Summary. The General Social Survey shows the share of Americans reporting they are "very happy" fell from 29% before the pandemic to 22%, the largest decline over any comparable span in the survey's 52-year history. The declines were largest among groups that had been happiest, while those who socialize frequently with friends and neighbors fell less.

Aziz Sunderji Home Economics
Date Posted:
Is Database:
Database

According to GSS data, there was a compression of the happiness distribution in America btw 2016–18 and 2022–24. Previously, for example, top earners were 24pp more likely than bottom earners to report being “very happy,” a gap that shrunk to 10pp.

Is American happiness falling most among those who were happiest?

Core argument: The share of Americans reporting they are "very happy" fell from 29% before the pandemic to 22% in the most recent General Social Survey reading, the largest decline over any comparable span in the survey's 52-year history.

American happiness has fallen off a cliff. The General Social Survey has tracked this since 1972. Their data shows the share of Americans reporting they are "very happy" dropped from 29% before the pandemic to 22% in the most recent reading—the largest decline over any comparable span in the survey's 52-year history. The chart shows the shift in the "very happy" distribution across the population, along with the ten demographic groups that experienced the biggest happiness declines. The groups that lost the most happiness are the ones that had the most to begin with. The bottom barely budged. The groups that held up best share one trait: social connection. People who see friends often dropped just 4 points, compared to a 9-point drop among those who see friends rarely. Happiness for those who socialize with neighbors dropped less than for those who rarely do.

Takeaways by Macro Roundup® AI

  1. The share of Americans reporting they are "very happy" fell from 29% before the pandemic to 22% in the most recent General Social Survey reading, the largest decline over any comparable span in the survey's 52-year history.
  2. The demographic groups with the largest happiness declines in the General Social Survey are those that started with the most happiness, while the bottom of the distribution barely moved.
  3. Americans who see friends often showed a 4-point drop in happiness versus a 9-point drop among those who see friends rarely, and those who socialize with neighbors declined less than those who rarely do.

Related Articles:

  • Rising Young Worker Despair in the United States — In the United States, mental despair once peaked in middle age but now declines steadily with age, a shift the authors attribute to rising despair among workers under 40. The hump-shaped age pattern persists among those unemployed or unable to work, while it remains flat for homemakers, students, and retirees.
  • US College Students’ Well-Being — A study of US college students finds moderate-to-severe depression reported by 26% of students at one elite institution, 22% reporting moderate-to-severe anxiety and 10% contemplating suicide. Poorer mental health is associated with being female, little exercise, low grades, and financial aid; financial stress is associated with higher suicidal thoughts.
  • Teens Used To Be Happier. What Changed? — The share of US high school seniors describing themselves as "very happy" peaked at 24.8% and remained around 24.4% before falling to 11.4% at its low, recovering only to 12.7%, well below the 17.9% recorded before the pandemic. The decline coincided with smartphones and social media becoming pervasive.

Thursday, March 5, 2026

AI Summary. US labor productivity has grown at an average pace of 2.8% since the start of 2023, more than double the average rate for the decade through 2019. Economists caution that quarterly productivity figures are volatile and single readings carry limited information.

Enda Curran Bloomberg
Date Posted:
Is Database:
Database
Is Important:
Important

American labor productivity has grown at an average pace of 2.8% since the start of 2023, twice the 2009–2019 rate.

Has labor productivity growth doubled its pre-pandemic pace?

Core argument: U.S. labor productivity rose 2.8% in the fourth quarter of 2025 and has grown at an average 2.8% pace since the start of 2023, more than double the average for the decade through 2019.

Labor productivity rose 2.8% [in Q4 2025]. Economists typically don’t read too much into one quarter, since the numbers tend to jump around. Still, the trend has been ticking up. After big swings in the pandemic period, productivity has grown at an average pace of 2.8% since the start of 2023. That’s more than double the average for the decade through 2019.

Takeaways by Macro Roundup® AI

  1. U.S. labor productivity rose 2.8% in the fourth quarter of 2025 and has grown at an average 2.8% pace since the start of 2023, more than double the average for the decade through 2019.
  2. Economists caution against reading too much into a single quarter of productivity data, since the figures tend to jump around, though the trend has been ticking up.

Related Articles:

  • Economic Growth Slowed in Fourth Quarter, Hurt by Government Shutdown — U.S. gross domestic product rose at a 1.4% inflation-adjusted annual rate in the fourth quarter, below the 2.5% economists surveyed expected, weighed down by a record-long government shutdown and slower consumer spending. Full-year growth was 2.2%, down from 2.4% the prior year and the weakest since 2022.
  • An AI Productivity Boom? Don’t Count Your (Productivity Data) Chickens — Measured productivity can rise from compositional effects when lower-wage, lower-productivity workers leave the labor force, as happened during Covid and 2009, and immigration policy changes could produce a similar effect. Much of the recent productivity boost appears to come from capital utilization tied to increased investment in AI rather than workers becoming more productive using AI.
  • Waiting for the AI J-Curve — Artificial intelligence has yet to appear in employment, productivity, or inflation data, or in profit margins and earnings expectations outside the largest technology firms. With fierce competition pushing large language model prices toward zero for users, value creation depends on sector-level implementation, and the author argues AI will likely enhance labor in some sectors rather than replace it across all.

AI Summary. The main economic risk to major economies from the war in Iran is that higher energy prices lift inflation and slow growth, with oil near $80/bbl, up 14% since late February. Analysts project oil moderating to $76/bbl and then $65/bbl as the risk premium fades in a structurally oversupplied market.

Joseph Briggs, Megan Peters and Sarah Dong Goldman Sachs
Date Posted:

GS infers from the 14% rise in oil prices to $80 since late February that the Strait of Hormuz will be closed for 5–6 more weeks, with a .02pp rise in prices and .01pp hit to GDP globally. Prolonged closure could raise prices 0.7pp and slow growth 0.4pp.

How does higher oil from Middle East conflict affect global growth?

Core argument: Oil prices have risen roughly 14% since late February to about $80/bbl, which the commodities team estimates incorporates an expectation of an additional 5–6 weeks of a full Strait of Hormuz closure with pipeline redirection.

The main economic risk to most major economies from the war in Iran is that [rising] energy prices boost inflation and slow growth. Oil prices have risen to around $80/bbl, a 14% increase since late February. Our commodities team estimates that this price incorporates an expectation of an additional 5-6 weeks of a full Strait of Hormuz closure with pipeline redirection. Their recent forecast upgrade assumes oil prices rise a bit further before moderating to $76/bbl on average in 2026Q2 and $65/bbl in 2026Q4 on the back of a fading risk premium and normalization in a market that is structurally oversupplied. We see additional downside growth risks from tighter financial conditions. While financial conditions have not systematically tightened in past Middle East conflicts, our global FCI has tightened by 31bp since Friday. If sustained, this tightening would incrementally lower global GDP growth by 0.3pp over the next year. We also see upside inflation risks from potential disruptions to LNG supply and heightened inflation expectation sensitivity.

Takeaways by Macro Roundup® AI

  1. Oil prices have risen roughly 14% since late February to about $80/bbl, which the commodities team estimates incorporates an expectation of an additional 5–6 weeks of a full Strait of Hormuz closure with pipeline redirection.
  2. The commodities team's forecast upgrade assumes oil rises somewhat further before moderating to an average $76/bbl in 2026Q2 and $65/bbl in 2026Q4 as the risk premium fades in a structurally oversupplied market.
  3. The global financial conditions index has tightened by 31bp since Friday, a move that if sustained would incrementally lower global GDP growth by 0.3pp over the next year.

Related Articles:

  • The Risks to Energy Prices From Iran — Tanker traffic through the Strait of Hormuz, which normally carries a fifth of global oil and liquefied natural gas supply, appears significantly disrupted as shippers, producers, and insurers turn cautious. Analysts estimate an $18/bbl risk premium in crude, and project European gas and spot liquefied natural gas could reach about $25/mmBtu if flows halt for a month.
  • Fighting Words: The Energy Transition in 2026 — Estimates based on primary energy overstate how much electricity is needed to replace oil in passenger cars, since electric motors convert 80%-90% of electricity into motion versus about 18% for gasoline cars. Measuring useful final energy net of waste heat avoids this "primary energy fallacy": the US consumed 45 exajoules of useful final energy versus 95 exajoules of primary energy.
  • The Rise Of The Security Premium — Energy security concerns, not environmentalism, are argued to drive the buildout of solar, wind, and nuclear power, since domestic generation avoids chokepoints like Hormuz, the Red Sea, and the Panama Canal. China and India are expected to demand higher strategic stockpiles of energy and other critical commodities, repricing security above efficiency.

AI Summary. Chinese banks, funded by low-cost domestic money amid monetary easing and weak domestic credit demand, are expanding cross-border lending and undercutting global rivals for sought-after Asian borrowers. Bankers at international institutions say they are being priced out of some of these deals.

Bloomberg Staff Bloomberg
Date Posted:
Is Database:
Database

China’s savings glut and “monetary easing to counter slowing growth” are manifesting themselves in credit expansion overseas, as bankers seek higher yields than they can get at home amidst deflationary pressure.

Are Chinese banks undercutting global rivals in cross-border lending?

Core argument: Chinese banks, flush with low-cost funds from Beijing's monetary easing, are reshaping parts of the $9.5 trillion global loan market by extending cheaper credit across borders.

Chinese banks, flush with low-cost funds, are reshaping parts of the global loan market, underscoring how deflationary pressures in the world’s second-largest economy are increasingly influencing competition with international lenders. Much like US and European manufacturers who have long complained about being undercut by cheaper Chinese rivals, bankers at global institutions now say they’re facing the financial equivalent: being priced out of some of Asia’s most sought-after borrowers as Chinese lenders extend cheaper credit across borders. Enabled by Beijing’s monetary easing to counter slowing growth, Chinese banks are expanding overseas lending amid weakening domestic credit demand. That edge may prove even more significant as the Iran crisis threatens to upend global energy markets, raising the likelihood that major central banks will hold off easing interest rates amid mounting uncertainty.

Takeaways by Macro Roundup® AI

  1. Chinese banks, flush with low-cost funds from Beijing's monetary easing, are reshaping parts of the $9.5 trillion global loan market by extending cheaper credit across borders.
  2. Bankers at global institutions say they are being priced out of some of Asia's most sought-after borrowers by Chinese lenders, a financial equivalent of the undercutting US and European manufacturers have long complained about.
  3. Weakening domestic credit demand in China is accompanying an expansion of its banks' overseas lending, an edge that may prove more significant if the Iran crisis leads major central banks to hold off easing interest rates.

Related Articles:

  • The Dangerous Triumph Of Neo-Mercantilism — Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.
  • The True Cost of China’s Falling Prices — Prices fell for 51 of 67 consumer items tracked over a two-year period in China, while the broader GDP deflator, which includes upstream sectors, declined for 10 straight quarters, indicating deflation is more entrenched in industry. The share of "zombie" firms whose profits cannot cover debt interest rose from 19% to 34% over five years.
  • China’s Trade Surplus, Part I — China's very high investment rates, combined with a shrinking workforce and slowing productivity, produce sharply diminishing returns, making its decades-old high-savings, high-investment growth model unsustainable. The author argues China's leaders resist a pivot toward consumption because of ideology and geopolitical ambition, with the leadership rejecting welfare spending as breeding dependency.

AI Summary. In each year from 1988 to 2025, more US companies left dividends unchanged than changed them, and changes were more often increases than decreases. Stock buybacks have become the dominant way US companies return cash, making up more than 60% of cash returned over the past decade, which the author attributes mainly to their flexibility.

Aswath Damodaran Musings on Markets
Date Posted:
Is Database:
Database

The fraction of cash flowing to shareholders via buybacks rather than dividends rose from ~35% in 1988 to ~75% in 2000, leveling off at ~65% post-GFG. No longer tax-advantaged, buybacks are preferred because they are more reversible, Damodaran argues.

Why have buybacks overtaken dividends as the main cash return?

Core argument: Buybacks accounted for more than 60% of cash returned to shareholders by US companies over the last decade, and have become the dominant approach to returning cash since their systematic use picked up in the 1980s.

In every single year, from 1988 to 2025, the % of companies that pay the same dividends that they did in the previous year outnumbers companies that change dividends, and when dividends are changed, they are more likely to be increased than decreased (Figure 1 in gallery). [Further], in most companies, managers look to peer group dividend policy for guidance on how much, if any, to pay in dividends. Thus, a firm may turn away good investments or borrow much more than it should because it feels the need to sustain dividends. While buying back stock has always been an option available to US companies, its use as a systematic way of returning cash picked up in the 1980s, and in the years since, stock buybacks have become the dominant approach to returning cash for US companies. As you can see [in the above image], in the last decade, more than 60% of cash returned to shareholders took the form of buybacks. The primary reason, in my view, is that buybacks, unlike dividends, are flexible, with companies often reversing buybacks, if macro circumstances change, as was the case in 2008 and 2020. There are other reasons that have been offered for the explosive growth in buybacks, but none of them are as significant. Changes in tax law in the last two decades have reduced, if not eliminated, the tax disadvantages associated with dividends, cutting against [the traditional tax-based argument for preferring buybacks].

Takeaways by Macro Roundup® AI

  1. Buybacks accounted for more than 60% of cash returned to shareholders by US companies over the last decade, and have become the dominant approach to returning cash since their systematic use picked up in the 1980s.
  2. In every year from 1988 to 2025, companies keeping dividends unchanged from the prior year outnumbered those changing them, and changes were more likely to be increases than decreases.
  3. Damodaran attributes the growth in buybacks primarily to their flexibility, citing companies reversing buybacks in 2008 and 2020, while tax law changes over the last two decades reduced or eliminated the tax disadvantages of dividends.

Related Articles:

  • Capital Allocation — Internal financing has been the main source of capital for U.S. corporations, with steady new debt issuance except in recession years, consistent with a stable capital structure. Companies have retired equity on average, and net equity issuance remains negative even after accounting for stock-based compensation.
  • Trump Demands More Defense Spending But Threatens Biggest Contractors — An executive order requires major defense contractors to end stock buybacks and dividends and cap executive pay at $5m a year until they invest more in factories and research, alongside a demand that Congress raise annual defense spending by over 50% to $1.5tn. Whether a president can mandate private capital allocation is unclear.
  • Which U.S. Stocks Generated the Highest Long-Term Returns? — Of the 29,078 U.S. common stocks in a database spanning nearly a century, 51.6% had negative cumulative returns, while 17 stocks returned more than 5m% — led by Altria at 265m%. Those top performers averaged annualized returns of just 13.47%, underscoring the value of time invested.

AI Summary. Nvidia has halted production of H200 chips intended for the Chinese market, betting that regulatory barriers in both Washington and Beijing will continue to limit sales to China. The company has reallocated manufacturing capacity at Taiwan Semiconductor Manufacturing Company toward its next-generation Vera Rubin hardware.

Zijing Wu Financial Times
Date Posted:

Nvidia has stopped production of chips intended for the Chinese market, suggesting to the FT that, “Nvidia no longer expects significant H200 sales in China in the near term, after months of uncertainty over US export approvals.”

Are regulatory barriers pushing a chipmaker to abandon China-bound production?

Core argument: Nvidia has halted production of chips intended for the Chinese market, betting that regulatory barriers in both Washington and Beijing will continue to limit its sales to China.

Nvidia has stopped production of chips intended for the Chinese market, betting that regulatory barriers in Washington and Beijing will continue to limit sales to China. The US chipmaker has reallocated manufacturing capacity at Taiwan Semiconductor Manufacturing Company away from making H200 chips to its next-generation Vera Rubin hardware, according to two people with knowledge of the matter. Nvidia had heavily lobbied Washington and Beijing to allow sales of its H200 chips in China. After US President Donald Trump indicated in December he would permit sales, Nvidia began stepping up production. The company had expected orders of more than 1mn units from Chinese clients. Its suppliers had been working around the clock to prepare for deliveries initially planned for as early as March.

Takeaways by Macro Roundup® AI

  1. Nvidia has halted production of chips intended for the Chinese market, betting that regulatory barriers in both Washington and Beijing will continue to limit its sales to China.
  2. Nvidia has reallocated manufacturing capacity at Taiwan Semiconductor Manufacturing Company away from H200 chips toward its next-generation Vera Rubin hardware, according to two people with knowledge of the matter.
  3. Nvidia had expected orders of more than 1mn units from Chinese clients after US President Donald Trump indicated in December he would permit sales, with suppliers working around the clock for deliveries initially planned as early as March.

Related Articles:

  • Should the US Sell Hopper Chips to China? — The H200 chip is roughly 6x as powerful as the H20, which requires an export license for China and has been approved only in limited quantities. The authors estimate the US would hold a 21–49x advantage in AI compute produced in a coming year absent chip exports to China, shrinking to between 6.7x and 1.2x with unrestricted H200 exports.
  • Trump’s Nvidia H200 Reprieve Spurred by Huawei’s AI Gains — A US decision to permit Nvidia H200 sales was shaped by an assessment that Huawei competes with Nvidia more closely than acknowledged, with officials finding Huawei's CloudMatrix 384 platform performed as well as Nvidia's most advanced NVL72 system. Officials also concluded Huawei could produce a few million Ascend 910C accelerators annually.
  • China’s DeepSeek Uses Banned Nvidia Chips for AI Model, Report Says — Chinese AI developer DeepSeek used Nvidia Blackwell chips that were smuggled into China through countries where their sale was permitted, according to a report citing unnamed sources. The chips were installed in data centers abroad, then dismantled and shipped to China after clearing inspection by server-equipment companies.

AI Summary. The Defense Department formally notified Anthropic that the company and its AI tools present security threats, applying a supply-chain risk designation normally reserved for firms from foreign adversaries and rarely used against a U.S. company. Anthropic said it would challenge the designation in court.

Amrith Ramkumar Wall Street Journal
Date Posted:

The Defense Department has officially designated Anthropic a supply-chain risk. Anthropic will challenge the designation in court.

Is the Pentagon labeling a U.S. AI firm a supply-chain security risk?

Core argument: The Defense Department formally notified Anthropic that the company and its AI tools present security threats warranting a supply-chain risk designation normally reserved for businesses from foreign adversaries, according to a senior Pentagon official.

The Defense Department on Thursday formally notified Anthropic’s leadership that the company and its AI tools present security threats that require an action normally reserved for businesses from foreign adversaries, a senior Pentagon official said. Anthropic said last week it would challenge the designation in court. It is one of the first times the supply-chain risk designation has been applied to a U.S. company, a move that tech analysts warn could have a chilling effect on other businesses wanting to do business with the government. The supply-chain risk designation can be used very broadly or in a narrowly tailored way. Hegseth’s post last week said any company working with the military can’t do business with Anthropic, a directive that some analysts said goes beyond the Pentagon’s legal authority. Those analysts said the Defense Department could only tell companies not to use Claude specifically in their work with the Pentagon.

Takeaways by Macro Roundup® AI

  1. The Defense Department formally notified Anthropic that the company and its AI tools present security threats warranting a supply-chain risk designation normally reserved for businesses from foreign adversaries, according to a senior Pentagon official.
  2. Anthropic said it would challenge the designation in court, in one of the first instances of the supply-chain risk designation being applied to a U.S. company.
  3. Hegseth's post stated that any company working with the military cannot do business with Anthropic, a directive some analysts said exceeds the Pentagon's legal authority, which they said extends only to barring Claude in Pentagon work.

Related Articles:

  • Clawed — The US Department of War threatened to designate the artificial intelligence company Anthropic as a supply-chain risk after it refused to accept the government's terms on how its technology may be deployed. The author argues this treats a domestic company like a foreign adversary for expressing different views and making its own decisions about the use of its property.
  • Anthropic and Alignment — Designating an AI company a supply-chain risk would be devastating because it depends on cloud hosting from Amazon, Microsoft, and Google, all of which hold US defense contracts, though such authority appears limited to work covered by US government contracts. The author argues governments have incentive to destroy any private firm that dictates terms to their military.
  • The Geopolitics of AI: Decoding the New Global Operating System — The performance gap between the top American and Chinese AI models narrowed from 9.3% to 1.7%, with Chinese firms relying on cheaper open-source models—DeepSeek prices usage 20-40x below OpenAI's ChatGPT. This price advantage could win adoption in developing countries and build dependency on Chinese AI ecosystems.